Economic recovery a slow thaw

Tan Hui Leng, huileng@mediacorp.com.sg

GLOBAL economic recovery is likely later in the year, but sustainable growth will be slow, said investment strategists here yesterday.

Describing the recovery as a "slow thaw", Societe Generale Asset Management (SGAM) strategy and economic research head Michala Marcussen said she expects weak growth in the next two years before sustainable recovery in 2012.

Barclays Wealth's Aaron Gurwitz, managing director and head of global investment strategy, said while he is "less pessimistic" the recession will creep into the next year, downside risks still remain, with the weak economy and crippled banking system vulnerable to external shocks.

Ms Marcussen, one of Europe's 100 most influential women in finance, noted that even amid signs of a pick-up in the economy, credit is still not flowing normally. But she is encouraged by evidence of improvement, such as stabilisation in inventory levels, policies to stimulate the economy, as well as positive signals in business confidence.

"Ordinarily with all this stimulus out there, business confidence would have soared up to historically high levels rather than stabilising at historical levels, so that shows that there is something out there slowing down the economy," she said.

    Economic recovery, she noted, would come with deleveraging — as the current downturn, triggered by the sub-prime crisis is due to the world being increasingly leveraged and dependent on short-term loans.

Thus, a key challenge is the deleveraging of US household debt. But unlike previous crises when the world would, at some point, depend on the US to increase leverage, it is unlikely to happen this time round, she added. Asia is unlikely to pick up the slack because it does not yet have independent domestic growth engines in place, something that is likely to change only in the longer term.

From TODAY, Business – Thursday, 23-April-2009